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Goldman Sachs and Nomura Holdings are warning of significant financial risk in India, where the ratio of short-term external debt to currency reserves is at its highest point in more than a decade. "We expect the focus to turn to India's external vulnerability amid a worsening global backdrop. The worst in terms of the quarterly current-account deficit is likely behind us," said Sonal Varma, an economist at Nomura in Mumbai.

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India's stock market faces a challenging October after managing a 4% gain last month. Corporate earnings, inflation and another rate decision by the central bank are regarded as likely negatives, but the market may realize some benefit if the U.S. government continues to flail and fails to resolve its self-imposed debt crisis.

Moody's says India's current-account deficit is likely to amount to 4.6% of gross domestic product in the current fiscal year, much higher than the government estimate, and expressed skepticism over other aspects of the country's financial well-being. Meanwhile, Fitch warned that any slippage on the government's fiscal plan could affect India's sovereign rating.

The U.S. Treasury said that failure to raise the nation's debt limit leading to a default would inflict damage to the economy that would last longer than a generation, while President Obama warned it would be impossible to assign priorities among debt and other obligations. "A default would be unprecedented and has the potential to be catastrophic," the Treasury said. "The negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse."

In a little less than a month, India's Yes Bank has lost 43% of its market value as rising interest rates in defense of the rupee raise fears of defaults and pared profits. "The sudden reversal in the interest rate scenario caught everybody off guard," said analyst Jisha Nair at BOB Capital Markets in Mumbai.

The Indian economy has reached a turning point and will begin to pick up its pace, though a quick return to high growth is unlikely, the government says in its annual economic survey. In all, the report "paints a cautiously optimistic picture of the economy and holds out hope for the future," Nomura economists Sonal Varma and Aman Mohunta said. Observers say the survey suggests the government will submit a fiscally conservative budget Thursday.